Market Snapshot – Late Summer 2025: Signs of Stability Amid Global Uncertainty

As summer winds down, Canada's commercial real estate (CRE) landscape is entering a new phase—one marked by macroeconomic volatility, cautious optimism, and shifting demand across property types. Despite lingering headwinds such as job losses and policy uncertainty, stabilizing inflation, steady interest rates, and improved capital flows are laying the groundwork for renewed momentum.

During his keynote at CRE.Converge in Toronto, BGO’s Chief Economist Ryan Severino summarized it well:

“Slower, not stalled. The economy, property fundamentals and capital markets are all decelerating under policy uncertainty—but activity has not ground to a halt.”

Here’s a closer look at the key forces shaping CRE across Canada and beyond as of September 2025.

The Economic Backdrop: Mixed Signals, Stabilizing Trajectory

Unemployment

Canada’s job market sent up a caution flag in July, shedding 41,000 positions—including 51,000 full-time jobs. Youth unemployment spiked to 14.6%, its highest level since 2010 (excluding the pandemic), highlighting ongoing labour market fragility. The national unemployment rate bumped up to 7.1% in July. Notably, the transportation and warehousing sector added 26,000 roles, underscoring resilience in logistics-related employment.

Inflation

More encouragingly, inflation cooled for a second consecutive month, with CPI falling to 1.7% in July, primarily driven by lower gas prices. However, shelter costs remain sticky, with Canadian rents up 5.1% overall and mortgage interest costs up 4.8% year-over-year—pressures that continue to test affordability.

This softening inflation strengthens the case for a possible interest rate cut later this month, if further moderation continues.

Interest Rates & Policy Uncertainty

The Bank of Canada has held its policy rate at 2.75%, navigating a careful balance between inflation control and economic growth. Although there's a greater than 70% probability of a rate cut at the next meeting (September 17), trade tensions—particularly with the U.S.—remain a wildcard.

Severino pointed out that the U.S. effective tariff rate on Canada has recently surged above 19%, while Canada’s response has been more modest. 

These trade dynamics could affect both inflation and demand.

“Once central banks stop raising interest rates—even before they start cutting—commercial real estate returns tend to bounce back quickly,” Severino added.

Real Estate Market Overview: Stabilization, with Sector-by-Sector Nuance

Multifamily: Demand Endures, Even as Rents Soften

Canada’s multi-suite residential rental sector remains a pillar of investor interest. National home sales rose for a fourth straight month in July, with a 17.3% gain in the GTA since April. At the same time, rents are beginning to moderate in cities like Toronto, Calgary, and Vancouver as supply finally catches up.

Still, investor appetite remains strong—over $812 million in deals closed in Q2, a 39% jump from the previous quarter. Severino noted that while Canada’s vacancy rates have edged higher, net absorption remains in line with completions, helping to support long-term confidence.

In contrast, U.S. multifamily markets may face more prolonged challenges, with potential negative population growth and declining geographic mobility weighing on recovery.

Industrial: Supply Expands, but So Does Structural Demand

Canada’s industrial sector is experiencing a measured rebalancing. National vacancy is on the rise due to robust construction, particularly in Toronto, Montreal, and Vancouver. This has led to a 3.2% year-over-year rent dip, down to $15.37/sf—but values still exceed pre-pandemic levels.

“Vacancy is up due to supply, not lack of demand,” Severino emphasized. “Logistics rents are still growing faster than inflation.”

Investor interest in logistics and distribution assets remains solid, especially as e-commerce, AI, and supply chain resiliency continue to drive structural demand.

In fact, AI is becoming a new CRE demand driver.

“In Q1 of this year, growth in the computer equipment and peripherals category was the second-highest on record—only surpassed by Q1 1983,” Severino noted.

Office: A Two-Speed Market Finds Its Footing

After years of uncertainty, Canada’s office sector is showing early signs of recovery—but it’s highly bifurcated.

Top-tier, amenity-rich buildings in downtown cores are seeing renewed demand and even modest rent increases, while Class B and C properties struggle, with downtown vacancies reaching 25% in some segments.

Sublease space is down 26% from peak levels, not due to new demand but from expirations and strategic withdrawals. Meanwhile, large employers like Canada’s major banks are pushing for a full return to the office, creating potential future space shortages.

“We may need to clean up office inventory, just like retail did over the last 15 years,” Severino said.

Retail: Resilience Redefined

Retail continues to outperform expectations. In Canada, the national vacancy rate remains steady at 5.2%, with grocery, fitness, and service-based tenants driving demand. In the U.S., sales per square foot have risen 72% since 2000, reflecting operational efficiency and surprising strength in brick-and-mortar retail.

Toronto’s open-air and mixed-use urban retail is especially strong, with landlords gaining leverage in prime, transit-oriented submarkets.

“The overwhelming majority of retail sales still happen in physical stores,” said Severino, dispelling the long-running “retail apocalypse” narrative.

Capital Markets Outlook: A Wall of Maturities—and Opportunities

The broader capital markets are approaching a critical juncture. Between 2025 and 2027, roughly $2.1 trillion in commercial real estate debt is set to mature, raising questions around refinancing in a higher-rate environment.

While underwriting standards are shifting, the easing interest rate trajectory should offer some relief. Investors willing to navigate the complexity may find opportunistic entry points—especially in well-located, income-producing assets.

Looking Ahead: Realignment, Not Retreat

Despite today’s economic noise, the outlook for CRE in Canada—and globally—is growing more optimistic.

Cooling inflation, stable interest rates, and a strategic return of capital into core sectors are laying the foundation for renewed momentum into 2026. 

The fundamentals of real estate—income stability, inflation protection, and long-term value—are once again top of mind.

“Momentum in CRE is still building, albeit slowly and unevenly,” Severino concluded. “The task now is to position portfolios and strategies to capture that momentum as policy uncertainty begins to lift.”

Key Takeaways for CRE Professionals:

• Economic deceleration is not collapse: Growth is uneven, but still alive.

• Inflation relief is near: Rate cuts may arrive by year-end, improving liquidity.

• Industrial and multifamily remain favoured sectors, though office and retail show selective strength.

• AI and automation are new demand drivers: Infrastructure and logistics will benefit.